News Release

Vancouver -- The B.C. Securities Commission has found a mutual fund dealer, its principals and salespeople peddled high-risk investments -- including a bowling alley development and an ostrich farm operation -- unsuitable to conservative clients that included widows and elderly investors.

In a hearing decision made public today, a commission panel ruled that the principals and salespeople of Langley-based Canadian Global Investment Corp. violated the "know your client" and "suitability of investment" rules in selling "speculative, illiquid and highly risky" exempt securities to clients.

The firm's principals -- Danny Francis Bilinski and Robert Pierre Lamblin -- also violated the "fair dealing" rule when they placed their own interests ahead of their clients in selling the securities.

The panel ruled that the firm and its principals failed to establish and apply proper compliance and supervision procedures. They also failed to comply with conflict of interest rules in selling the exempt securities.

The panel said that this was a case in which a mutual fund dealer, its principals and its salespeople failed to fulfil their duties as registrants under the Securities Act.

The panel said it would consider sanctions at a later date. Under the Act, the panel can ban individuals from the securities markets and levy administrative penalties.

Almost 200 clients invested $20 million in the securities offered under the umbrella of the Canadian Global Financial Group Ltd. Bilinski and Lamblin sold more than 80 per cent of the securities. Many of the clients have lost most of the money they invested while some still hold highly risky investments that are unsuitable for them.

Bilinski and Lamblin pitched and sold the securities to clients by telling them that they could minimize their income tax, receive monthly income and earn double-digit returns with minimal risk.

During the 50-day-long hearing, the panel heard that some clients were advised to borrow against the equity in their homes and sell more conservative investments. In some cases, an individual's net worth was calculated by including estimated future inheritances from persons still living.

The panel concluded that the principals and the firm failed to "properly determine and record on their clients’ KYC [know your client] forms the clients’ essential and current financial and personal circumstances, financial sophistication and investment experience, investment objectives and risk tolerance."

Commission staff warned the firm in 1996 and 1997 to comply with the KYC and suitability rules when selling exempt securities but the firm continued to ignore these statutory duties.

The panel found "particularly abusive" Bilinski's and Lamblin's conflicts of interest: through Canadian Global Financial, the pair owned equity interests in the issuers of the securities and participated in their management. The panel determined that the two "were driven to promote and sell their own product. They had a vested interest to not make any other investments available" to their clients.

In rendering its decision, the panel concluded that, "It is the kind of conduct that brings the integrity of the securities markets into disrepute."

More than 30 witnesses testified during the hearing held from Sept. 11, 2000 to Feb. 15, 2001.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities and exchange contracts within the province. Copies of the decision can be viewed in the documents database of the commission’s website www.bcsc.bc.ca or by contacting Andrew Poon, Media Relations, 604-899-6880.

Backgrounder

Definition of exempt securities:
Exempt securities do not afford investors all the protections that are attached to securities sold under a prospectus, including rights of rescission and full disclosure of financial information and investment risk.

A partial list of the breaches of the Securities Act and Rules by the respondents:
Failure to:
· Comply with the "Know your client" and "Suitability of investment" rules (contrary to section 48(1) and (2) of the Rules)
· Comply with the "Fair dealing" rule (contrary to section 14 of the Rules)
· Establish and apply proper compliance and supervision procedures (contrary to sections 44(1) and 47 of the Rules)
· Maintain proper books and records, including records of exempt sales at its chief place of business (contrary to sections 27 and 29 of the Rules)

Common factors of Canadian Global clients:
1. Most of the clients were conservative, risk-averse investors with a strong desire to protect their capital.
2. Most clients trusted and relied on their representatives for their expertise and expected them to act in their best interests. Clients expected their representatives to protect them from any risk beyond the level with which they were comfortable.
3. Bilinski, Lamblin and others, did not properly determine and record on their clients’ ‘know your client’ forms (KYC) the essential and current financial and personal circumstances and investment objectives of their clients. Despite what was noted on the KYC forms, most clients had modest financial circumstances, limited investment experience and a low-risk tolerance.
(For a more complete list of client characteristics, see [para 156] of the decision available on the BCSC website.)

Here are portions of a witness testimony heard during the hearing:
“Basically, I left it up to Dan [Bilinski] and I trusted him, so I totally trusted him. My husband did, so I didn't have any reason for not trusting his judgment and that's basically it.”
· From the time of her husband’s death, this witness depended on her investment income to live.
· With her limited investment experience, she also depended on Bilinski to take care of her investments.
· Despite these circumstances, her 1996 "know your client" (KYC) form indicated a net worth of $650,000, investment experience as good, risk tolerance as moderate and investment objectives as tax savings and monthly income. (Her obligations to raise her grandchildren were not noted on her KYC form, although Bilinski said he was aware of them.)
· The witness testified that although she signed the KYC form she believed her investment experience at that time was poor and her risk tolerance was low.
· Despite these circumstances, between May 1997 and June 1999, Bilinski sold her over $182,000 in the exempt securities that included investments in the Ostrich farm and the bowling alley development. This represented over 25% of her net worth.
(Witness testimonies begin at [para 160] of the decision.]